The Anand Rathi report suggests that India’s stock market outlook remains positive in the long run, despite increased short-term volatility. Factors like geopolitical tensions, fluctuating crude oil prices, and adjustments by Foreign Institutional Investors (FIIs) due to China’s economic stimulus have contributed to this volatility. However, ongoing conflicts such as the Iran-Israel dispute are not expected to keep crude prices above USD 88-90 due to weak international demand. Strong domestic investments are providing support to the market, and upcoming festive and wedding seasons, along with a favorable monsoon and better Rabi crop prospects, are expected to boost demand in the second half of FY25. Increased government spending will also aid in this growth.
While certain sectors like discretionary consumption, two-wheelers, IT, cement, and large banks are still favored for investment in the long term, the second quarter may show mixed results. Heavy rainfall in August and September disrupted sectors like agrochemicals and commercial vehicle sales, impacting overall growth. Infrastructure projects and cement company volumes may also face delays due to upcoming elections, erratic weather, and slow budget allocations.
However, some sectors such as hospitals, alcoholic beverages, two-wheelers, jewelry, and consumer durables are expected to perform well in the current quarter. On the other hand, global sectors like metals and oil and gas may continue to lag. Subdued margin growth is expected in areas like agrochemicals, cement, retail, and metals due to pricing pressures, while sectors like auto, paints, alcoholic beverages, and select consumer goods may see margin improvements through premium products and strategic price hikes.
Banks may experience softer margins due to seasonal factors and tight liquidity, while NBFCs could see higher credit costs impacting their margins. Despite ongoing margin pressure in sectors like oil and gas, sequential improvements are anticipated due to better marketing margins. The second half of FY25 is expected to be stronger with the normalization of economic activities, despite the challenges faced in the first half.
The long-term outlook for the stock market in India remains promising, with Nifty50 expected to achieve 11 per cent earnings growth in FY25 and 14 per cent in FY26. Excessive rainfall in August and September has affected Q2 results, particularly for the agrochemical sector, leading to fewer applications of herbicides and insecticides. Improved soil moisture levels and water reservoir conditions indicate a positive outlook for the upcoming Rabi season. Revenue growth for Q2 FY25 is projected at 7 per cent year-on-year, with varying performance across sectors such as two-wheelers, passenger vehicles, and commercial vehicles.
In the banking sector, NII is expected to grow by around 10.6 per cent year-on-year in Q2 FY25, with PPoP increasing by 17 per cent. NBFCs are expected to show growth despite weaker margins, with credit costs remaining elevated. However, asset quality issues continue in the microfinance sector, with slippages and declining collection efficiency. Despite these challenges, overall growth in the market is expected to improve in the second half of FY25 as economic activities normalize.
